Dorsey has made good on his word, first tweeted on July 15, 2021, on launching a platform that allows funding of a non-custodial wallet (not owned by an exchange) through on and off-ramps into Bitcoin.
Payment company Square is entering the decentralized exchange space, in a project headed by Mike Brock, named TBD. TBD is unlike a traditional decentralized exchange, where crypto tokens are traded for other tokens, and where the amount of coins in liquidity pools determine the cost of a token. Brock opines that TBD can be thought of as a decentralized exchange for fiat.
TBD uses the tbDEX protocol, which is Square’s pitch to simplify the onboarding process for regular fiat users to the world of crypto, and vice versa, and is the subject of their recently published whitepaper. The challenge of creating this protocol is that no system that connects the fiat world to the crypto world can be completely trustless, due to the regulatory guardrails that accompany fiat transactions.
Social trust model, not governance tokens
There is an element of social trust required when transacting between the crypto and fiat worlds, which can be facilitated by Decentralized Identifiers (DID). Decentralized identifiers at Square are the baby of @csuwildcat, a self-taught developer who pioneered decentralized digital identities at Microsoft. DIDs allow for peer-to-peer connections between parties, without the need for intermediaries like Google or Facebook. It also provides the option for the parties to enlist a mutually agreed-upon third party to validate the counterparty in a transaction.
The transaction costs are commensurate with the level of anonymity in a transaction; the higher risk transaction (based on greater anonymity) attracts the highest transaction fees, while the lower risk transaction (based on lesser anonymity) attracts the lowest fees. The developer, who goes by the name of Daniel Ƀrrr, has also tweeted that technologies like Verifiable Credentials and Identity Hub data storage/relay protocols are used in the creation of tbDEX.
To understand verifiable credentials, it is important to consider what a credential is in the world that we inhabit. Education degrees and identity documents are examples of credentials that have real-world utility. Verifiable credentials are digital credentials that have the following properties: they are “cryptographically secure,” “privacy-respecting,” and “machine-verifiable.” Cryptography that does not require exposure of plaintext data (compare with ciphertext) can help to improve anonymity.
Identity Hubs are entities that store and relay data associated with a given DID. It helps data owners to manage and transact their data in a secure manner, independent of service provider infrastructure, routing mechanisms or interfaces. The three concepts of DIDs, VCs, and Identity Hubs are key in understanding tbDEX.
The whitepaper also addresses financial crimes, the tricky issue of chargebacks (payment reversals in the event a promised good or service was not supplied), and what happens if a participating financial institution (offers liquidity services) does not find required funds in a user wallet?
Twitter and Square CEO Jack Dorsey made his intentions clear surrounding the creation of TBD, alongside Seller, CashApp, and Tidal. TBD’s whitepaper is open for comments, which can be sent to the TBD Twitter handle.
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